The State Taxation Acts Amendment Bill 2023 (the Bill) was introduced in the legislative assembly on the 30th May 2023 to make changes to Duties and Land Tax in Victoria.
This article is further to our Tax Insight on the Victorian 2023-24 budget dated 25th May 2023.
The proposed Duties and Land Tax changes as provided in the Explanatory Memorandum are as follows:
This Bill amends the Duties Act 2000 to —
- To provide for the application of that Act to corporate collective investment vehicles (CCIV); and
- To further provide for exemptions and concessions from duty for special disability trusts; and
- To provide for an exemption from duty for a transfer of a principal place of residence to a person with a disability in certain circumstances; and
- In relation to exemptions and concessions from duty for eligible cardholders; and
- To provide for a decreasing rate of duty and exemption from duty on business insurance premiums; and
- To make statute law revision amendments.
The various duties exemptions and concessions, come into operation on 1 July 2023.
New definitions in respect of CCIVs are proposed to be inserted into the Duties Act 2000 and into the Land Tax Act 2005.
The Bill amends the Duties Act 2000 to provide for the application of the Duties Act 2000 to a CCIV. A CCIV is a legal form company that is comprised of one or more sub-funds, which do not have their own legal personality. The amendments provide that the Duties Act 2000 will apply to a CCIV at the sub-fund level rather than to a CCIV as a legal form company. This is achieved by treating each sub-fund of a CCIV to be a separate and distinct unit trust scheme and translating the corporate features of the CCIV to each unit trust scheme.
New duties section 3J: provides that for the purposes of the Duties Act 2000, each sub-fund of a CCIV is taken to be a unit trust scheme of which the CCIV is the trustee, the business, assets and liabilities of the sub-fund are the trust property and the members of the sub-fund are the beneficiaries. If a CCIV has multiple sub-funds, each sub-fund is taken to be a separate and distinct unit trust scheme. An example has been added at the bottom of section 3J(1) to explain how the section applies.
New duties section 251AA: provides an exemption from duty for a transfer of dutiable property from a CCIV taken to be the trustee of a sub-fund unit trust scheme to a custodian of the CCIV as custodian in respect of the same sub-fund unit trust scheme (and vice versa). The exemption is only intended to be available if the dutiable property the subject of the transfer is an asset of the same sub-fund immediately before and after the transfer.
LAND TAX CHANGES
The bill amends the Land Tax Act 2005 to —
- Provide for the application of that Act to corporate collective investment vehicles; and
- Provide for an exemption from land tax for land subject to a conservation covenant; and
- Temporarily increase certain land tax rates to offset COVID-19 debt; and
- Increase the absentee owner surcharge rate to 4%; and
- Decrease the tax-free threshold for land held by an absentee owner to $50 000; and
- Provide for an exemption from land tax for land used or occupied by a person with a disability in certain circumstances; and
- Make further provision for the exemption for the construction and renovation of a principal place of residence; and
- Make statute law revision amendments.
New land tax section 3G(1) provides that for the purposes of the Land Tax Act 2005, a sub-fund of a CCIV is taken to be a unit trust scheme of which the CCIV is the trustee, the business, assets, and liabilities of the sub-fund are the trust property and the members of the sub-fund are the beneficiaries. If a CCIV has multiple subfunds, each sub-fund is taken to be a separate and distinct unit trust scheme.
One consequence of new section 3G(1) is that the unit trust scheme that is the sub-fund may be an absentee trust within the meaning of section 3(1) of the Land Tax Act 2005. Another consequence is that land that is an asset of a sub-fund will be subject to Division 2A or 2AB of the Land Tax Act 2005 (as the case requires).
The Bill amends the Land Tax Act 2005 to—
- Introduce the COVID-19 debt temporary land tax surcharge to apply for a period of 10 years, which comprises:
- A land tax amount of $500 to taxable holdings between $50 000 and $100 000;
- A land tax amount of $975 to taxable landholdings above $100 000;
- An increase of the rate of land tax by 0·10 percentage points for thresholds with taxable holdings above $300 000 for general land tax rates and $250 000 for trust surcharge rates; and
- A decrease of the tax-free threshold for general rates with absentee owners to $50 000; and
- Increase the absentee owner surcharge rate from 2 per cent to 4 per cent on an on-going basis.
CORPORATE RECONSTRUCTION TRANSACTIONS AND CCIV
Victoria is the first jurisdiction to specifically include provisions relating to the treatment of CCIVs and clarifies that CCIVs will need to be considered at the sub-fund level (as a unit trust scheme) and not at the legal form company level (as a body corporate for Corporations Act purposes). This provides clarity in respect of the Victorian position, although there is still some doubt as to whether the other jurisdictions will take a consistent approach. In particular, if Queensland (with its unique trust acquisition rules applicable to unit trust schemes) were to take the same approach as Victoria, potentially any change in membership of a CCIV sub-fund could trigger a Queensland duty liability.
What remains unclear at this stage is, despite a sub-fund within a CCIV being a deemed “corporation” for corporate reconstruction purposes, is whether a sub-fund could ever access such a concession in Victoria. In particular, given the unique ownership structure of CCIVs, we query whether a CCIV sub-fund could ever be a member of a “corporate group”, which requires there to be a “parent corporation” and a “subsidiary corporation”. It will be interesting to see whether the Victorian State Revenue Office provides additional guidance on this point as it is not specifically addressed in the Bill or related Explanatory Memorandum.